Feds’ Shortcut to Closing Wealth Gap Backfired on Minority Homeowners

Mike Thomas, Orlando Sentinel, July 27, 2011

Did you see the devastating numbers about the wealth of minority families?

Their savings have largely been wiped out. White households now have 20 times more wealth than black households and 18 times more wealth than Hispanic households.

{snip}

It’s as if we got into a time machine and traveled back to the 1960s, wiping out years of government programs designed to close the wealth gap.

{snip}

There are various reasons. But a big one is this: The federal government turned home ownership into an affirmative-action program, complete with quotas. And a lot of people who had no business buying houses bought them and then lost them.

“As sad as it is to say, this began in the Clinton Administration as a response to the argument that the poor and minorities couldn’t get credit and were being left out of the home-ownership dream,” says James Wright, a sociology professor at University of Central Florida. “They couldn’t meet credit requirements. There was a lot of pressure in progressive circles” to change those requirements.

To further this goal, Fannie Mae agreed to buy high-risk subprime loans in 1999. This meant lenders could sell the loans to unqualified buyers and then dump them on Fannie and the taxpayers.

The Department of Housing and Urban Development set a goal that, by 2001, half the portfolios of Freddie Mac and Fannie Mae should be composed of loans to low-income and moderate-income buyers.

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Republicans try to blame Democrats for all this, but President George W. Bush certainly pushed the agenda. The belief was that home ownership was the key to wealth and neighborhood stability.

The feds kept score, comparing white home ownership to minority home ownership, as if this were some kind of competition.

{snip}

Of course, white buyers signed bad loans and got burned. So did affluent buyers and educated buyers and greedy speculators. The contagion spread to all segments of the market.

But the brunt of this disaster fell on the people who could least afford it, enticed by a government that thought it had come up with a shortcut for closing the wealth gap.

This was social engineering run amok.

{snip}

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  • singularity

    John C. Calhoun could have predicted it, but he’d show you the final outcome as the initial motive.

    Everybody got hurt but the bankers. Their bonuses were guaranteed by the government. We’d like to think they resisted the CRA that forced them to lend to blacks, but they did lend, made huge profits, then when it crashed, they got bailed out.

    This was an inside scam. The minorities were robbed of their down payments, and White taxpayers will be robbed for generations through taxation and inflation to pay the debt that bailed out the bankers, who go so rich they have enough put away for themselves and their families to be rich forever.

    Same old, same old…

  • Anonymous

    This guy seems to have figured it out back in October 2008:

    http://goo.gl/Br5wk

  • WASP

    I am in the real estate business and this is totally true.

    As I saw neighborhoods turn from white the black the prices started going up! That was the opposite of what I had always experienced in the past. I knew something was wrong.

    When the real estate bust first hit the news, I knew exactly what was going to happen and it did. Some neighborhoods lost 90% of their value.

    Related story:

    http://conservativetimes.org/?p=2207

  • Southern Hoosier

    This had nothing to do about closing the wealth gap. It was all about keeping minorities poor and dependent on the Democrats.

  • E Pluribus Pluribus

    A “shortcut for closing the wealth gap” is a fine description of this federally engineered catastrophe.

    Below are a few excerpts from “Anatomy of a Train Wreck: Causes of the Mortgage Meltdown,” a 29-page report from economist Stan J. Liebowitz, Oct. 3, 2008. Watch PC-paralzed minds — including supposedly cool, calculating investors —utterly lose touch with reality:

    “What you will not find, if you read the housing literature from 1990 until 2006, is any fear that perhaps these weaker lending standards that every government agency involved with housing tried to advance, that congress tried to advance, that the presidency tried to advance, that the GSEs tried to advance—and with which the penitent banks initially went along and eventually enthusiastically supported—might lead to high defaults, particularly if housing prices should stop rising.”

    * * *

    “What was the impact of this attack on traditional underwriting standards? As you might guess, when government regulators bark, banks jump. Banks began to loosen lending standards. And loosen and loosen and loosen, to the cheers of the politicians, regulators, and GSEs.”

    * * *

    “But how did investors, who are supposed to be cool and rational, misperceive the risk so badly? One of the questions about the current crisis is, why were purchasers of mortgages (i.e., mortgage-backed securities) willing to treat them as AAA and, perhaps more surprisingly, why were the rating agencies willing to give them AAA ratings?

    “Although it is not clear that any answer to this question can be completely satisfactory, I believe that if we understand how universal the idea of ‘flexible underwriting standards’ had become, how dangerous it was to suggest anything else (and risk being labeled a racist), and how strong this force is, even now, it becomes possible to understand how investors—who, just like other human beings, are prone to mistakes (the dot-com bubble is another recent example)—might be led by the same arguments that were being repeated by so many others.”

    COMMENT: emphasis on the prhase “how dangerous it was to suggest anyhing else [but relaxed lending standards]”: By such deformed minds great civilzations are destroyed.

    SOURCE: Policy Report: “Anatomy of a Train Wreck: Causes of the Mortgage Meltdown,”Stan J. Liebowitz, The Independent Institute,

    October 3, 2008

    http://tinyurl.com/3hpop7

  • Civilized Neighbor

    Now thanks to foreclosures many homes are being scooped up at a low price by people who then rent them out in the Section 8 programs. Since the mortgage meltdown ghetto blacks are turning up in all sorts of areas where they never were prior to 2008 in the metro area where I live.

  • ice

    Trying social engineering gimmicks to elevate minorities in various ways involving various facets of this society, has not only caused this empire to crack financially it has also weakened our military, dumbed down our schools and universities, and it is threatening the basic social fabric as well. We’re such a contentious mass of tribal factions we’ve reached the “squabbling boarding house” analogy that T. Roosevelt warned us about.

    This fractious society isn’t working, and it is coming along exactly as those with the foresight warned us about.

    This continuing downward spiral of the economy is going to be the coup de grâce.

  • Tom S.

    *White households now have 20 times more wealth than black households and 18 times more wealth than Hispanic households.

    And can you just imagine how much wider the gap would’ve been had we not had to support the non-Whites for the last 50 years?

    *-but President George W. Bush certainly pushed the agenda. The belief was that home ownership was the key to wealth and neighborhood stability.

    *-this began in the Clinton Administration as a response to the argument that the poor and minorities couldn’t get credit and were being left out of the home-ownership dream,”

    Yes and both of these fair minded, minority loving snakes live in the Whitest neighborhoods in the country. You can be assured that none of those new “home-ownership dreamers” were moved in to “stablize” THEIR neighborhoods!

  • Question Diversity

    1 singularity wrote:

    The minorities were robbed of their down payments

    Problem is, many of these minorities didn’t have to make a down payment. Some VDare writer uses the metaphor “Carter and Clinton loaded the gun and Bush pulled the trigger” to describe the public policy run-up to the subprime crisis and the resultant real estate bubble and burst. Bush’s demand to eliminate down payment requirements was absolutely crucial to the narrative, and his reasoning was that they disparately impacted black and Hispanic home buyers. In reality, down payments on something as big as real estate purchases are crucial for two main reasons: One, they give the buyer skin in the game and incentive to make the payments if they have the income, and two, they act as a brake on real estate prices going too high and pricing out working middle class buyers.

  • A Comment from Australia

    Ice #7 Says it all, the plain simple truth!

    I have the following conversation with my wife every time we watch the evening news:

    Wife: Look, OUR dollar is worth MORE than the US dollar! Why?

    Me: Because Mr Obama keeps printing money!

    Wife: Why does he print money.

    Me: Because he spends too much money. More than the country earns.

    Wife; Why does he spend so much money?

    Me: To keep all his supporters like blacks & illegal immigrants happy.

    Wife: They should have had Hillary for president! (no comment)

    A cartoon in our local paper shows a down and out Uncle Sam begging from an Australian tourist, Uncle Sam is saying “An Aussie dollar please”!

  • sbuffalonative

    Barney Frank assured us this didn’t happen.

    Haven’t heard much from Barney Frank recently.

  • Anonymous

    I think a lot of it was to keep property taxes high. During the depression real estate prices took a dive along with employment and everything else.

    Governments got so little money from the depression lowered property taxes they couldn’t pay employees or maintain the buidlings.

    Normally, when a mass of poor people move into an area real estate values go down and property taxes go down.

    Especially in California, Texas and the rest of the soon to be hispanic areas state and local government became desperate to keep real estate values high so as to get high property taxes.

    So instead of allowing real estate values to reflect the low income of the population, these no down payment, no credit, no income mortgages were created.

    I know that at any one time about 35 percent of the population of Los Angeles is on welfare; not unemployment, disability, retirement or living on student loans and grants but straight welfare.

    Add to the 35 percent on welfare and the rest on unemployment, disability and student loans how many people in Los Angeles actually work any more?

    Wages have plumetted since the Mexican invasion. Consider construction once the highest paid of the blue collar jobs. Now construction workers are day laborers who often don’t even get the minimum wage.

    The thing the creators of these no income, no credit no down payment mortgages didn’t think of was how were all these welfare receipients and minimun wage workers going to pay the property taxes.

    San Francisco real estate ads often mention the property tax along with the price of the house. One million 2 hundred thousand dollars asking price, $25,000 a year in property taxes.

    Most of the houses sold with these mortgages in S. California were five hundred thousand dollar houses. Property tax would be about $15,000 per year. So how is someone making $20,000 per year going to pay the mortgage, utilities and the property taxes?

    Jerry Brown wants to raise property taxes so as to support all the immigrants and blacks that are his voters. So he will raise the taxes on the homes and other real estate owned by Whites who have not abandoned their mortgages as the black and browns have.

  • WASP

    Ps…

    As far as predictions go, this guy was the best I ever saw concerning the meltdown.

    http://www.youtube.com/watch?v=jj8rMwdQf6k

    If you have NetFlix, rent a movie called “Inside Job”

    This whole mess was started by the Democrats and the Republicians went along because the loose lending seemed to stimulate the economy.

    The road to hell is paved with good intentions.

  • Madison Grant

    The author is correct: this madness was started by Clinton but continued by Dubya because his neocon buffoon adviser Karl Rove theorized that blacks and hispanics would join the GOP once they became homeowners.

    So how’s that working out, Karl?

  • Fer de Lance

    As sad as it is to say, this began in the Clinton Administration

    It began long before Clinton with the passage of the anti-redlining Community Reinvestment Act in 1977, which “‘encouraged’ depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods.” IOW, weakening mortgage lending standards.

    The Clinton administration kept its minority mortgages on a small scale to avoid attack from Republicans.

    President George W. Bush certainly pushed the agenda. The belief was that home ownership was the key to wealth and neighborhood stability.

    Bush and Rove stupidly believed that by offering poor, unqualified blacks and (especially) hispanics home mortgages (his “ownership society”) they would become GOP voters.

    In a speech in 2002, Bush bleated:

    One of the programs is designed to help deserving families who have bad credit histories to qualify for homeownership loans.

    Fallout?

    Study after study show that minorities were more likely than whites to get subprime mortgages, which are high-cost loans made to people with poor credit.

    The Federal Reserve released a study that found 52.8 percent of African-Americans got a high-cost home loan when they refinanced in 2006, compared to 37.7 percent of Latinos and just 25.7 percent of whites in the same year.

    Did the Bush – Rove “ownership society” strategy work to turn hispanics into GOP voters?

    Sixty-seven percent of Hispanic voters voted for Obama while only 31 percent voted for Republican candidate John McCain

    Bottom line?

    The wealth of minority families’ savings have largely been wiped out. White households now have 20 times more wealth than black households and 18 times more wealth than Hispanic households.

    You can’t fix stupid which is in abundant supply in the Republican and Democrat parties and certainly in the “minority” communities.

    Some VDare writer uses the metaphor “Carter and Clinton loaded the gun and Bush pulled the trigger” to describe the public policy: http://goo.gl/XAzKv

  • Kenelm Digby

    Wasn’t it Jared Taylor who wrote a book entitled “….Paved With Good Intentions”.

    (The title is of course short for the English expression “The road to Hell is paved with good intentions”).

  • E Pluribus Pluribus

    Re: 13 WASP’s endorsement of Peter Schiff.

    I heartily agree that Austrian economist Peter Schiff was strikingly prescient as regarding the collapse of the housing bubble. In fact, a 10-minute collection clips of Schiff appearances from 2006 onward on business programs has garnered over 1.9 million hits:

    PETER SCHIFF VERSUS ASSORTED WALL STREET “GURUS”

    (ten minutes of video clips from 2006-2007):

    http://tinyurl.com/67otdk

    REPUTATIONS SHATTERED, IN ORDER:

    1) ART LAFFER (8-28-06, on Kudlow & Company)*

    2) MIKE NORMAN (of Bizradio Network) & TOM ADKINS (of Remax Fairlawn) (12-31-06, CNBC)

    3) BEN STEIN & MIKE PAYNE (of Wstreet.com on Cavuto’s Fox Business News, 8-18-07)

    4) MIKE PAYNE (Fox Business News, 12-29-07)

    COMMENT: I would advise going to his brokerage firm web site;

    http://www.europac.net/

    Sign up for the free weekly (or so) ten-minute Video blog AND, if you won’t more, subscribe to Schiff Radio and listen to highlights of his daily radio program.

    Schiff is an excellent teacher of the Austrian prespective on economics. He is a strong backer of Ron Paul.

  • Vito Danelli

    Here’s an incredible story about subprime mortgages:

    Housing Dream Backfires For Immigrant

    http://goo.gl/sjEdp

    A Nigerian immigrant with a “salary of $20,000 purchased a $560,000 house”

    And it gets better – at one point he “owned” 16 houses!!!!

  • Jack

    “Their savings have largely been wiped out. White households now have 20 times more wealth than black households and 18 times more wealth than Hispanic households.”

    Cry me a river, you got exactly what you deserved. Actually less, these people should have been flogged in public.

    “It’s as if we got into a time machine and traveled back to the 1960s, wiping out years of government programs designed to close the wealth gap.”

    Talk about over reach, if only that were somewhat true.

    “But the brunt of this disaster fell on the people who could least afford it,…”

    And were responsible for it.

    Don’t look for any sympathy here deadbeats.

    I am sick of this idea that all these losers that lied and committed fraud are somehow not responsible for their actions.

    It’s always “the government” or “the bankers.”

    Regardless of crooked banks or pols, you deadbeats ARE STILL JUST AS GUILTY AS THEY ARE!!!

  • Peejay in Frisco

    What these dummies cant figure out is that by making loans easier for everyone to get without increasing the supply of housing, or lowering demand for it (impossible to do), the only thing that can change is the price, which goes, guess where: UP UP and away.